Honesty is best policy

By Steve Baker, August 25, 2011

How much money do you have to spend? Easy. Count your notes and coins and the balances of all your bank accounts which provide money on demand.

You could spend using credit cards or an overdraft or take a loan, but that's credit to be repaid, not money on hand. You might look at assets you could sell for money, but again, you would know they were not money itself.

Ask economists how much money there is and you will get many answers. You know money is what you can exchange for real goods and services, but economists often include things like time deposits, which cannot be spent because they have fixed terms. Money is one half of every transaction, so its supply really matters. According to my colleague Dr Anthony J Evans of Kaleidic Economics, the Bank of England's preferred measures, "Narrow Money" and "Broad Money", are either too narrow or too broad. From the perspective of the Austrian School of Economics, Anthony, together with entrepreneur Toby Baxendale, chairman of The Cobden Centre, has established and now publishes a different measure which they call "MA". A chart (see above) of the growth of MA shows a pattern that is not visible in the Bank of England's measures.

We built society on an expanding supply of money - on credit. When that expansion ended, we had an almighty crisis. Despite quantitative easing (QE) money kept on dwindling. Now QE has worn off and we are in yet more trouble. The answer is not more money printing but asking why we need ever more credit. What would the world look like if we produced, saved and invested?

Some values survive the centuries: dishonest money dwindles away, but he who gathers money little by little makes it grow. If we are to exit this crisis into an era of sustainable prosperity, we will need honest money. A good start would be to count it well.

Steve Baker is MP for Wycombe and a director of The Cobden Centre, an educational charity for social progress through honest money, free trade and peace.

Last updated: 11:54am, August 25 2011